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United States District Court, Southern District of New York

May 2, 2003


The opinion of the court was delivered by: Thomas P. Griesa, United States District Judge


Plaintiff Anthony DiMaria claims that defendant First Unum Life Insurance Company wrongfully denied his claim for disability benefits. Plaintiff originally sued in Supreme Court, New York County. Defendant removed the case to federal court on the basis of federal question jurisdiction under the Employee Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. § 1001 et seq. Plaintiff moves to remand, asserting that the lawsuit does not implicate ERISA.

The motion to remand is denied.


The principal issue raised by plaintiff is whether it was he who established the employee benefit plan that is at issue in this case.

Plaintiff is a physician. During the relevant time period, plaintiff was a sole practitioner specializing in internal medicine. His practice employed one medical assistant.

Defendant is in the business of issuing group insurance policies. Defendant administers its policies through a form of internal trust. On April 15, 1994 plaintiff signed a form entitled "Application for Participation in the Select Group Insurance Trust." There is also a signature for the "Agent or Broker," but that signature is unintelligible. The application contained the following:

By this application, the Employer/Applicant:

1. agrees and accepts the terms of the Trust Agreement (including all amendments to the Trust Agreement) for the Insurance Trust named above for so long as it elects to participate in the Trust;
2. agrees to remit regularly the required premium payments; and
3. elects coverage as shown in the Summary of Benefits and agrees that only those provisions which appear in the Summary of Benefits provided to the Employer/Applicant apply to its insurance coverage.
The Trust Agreement states:

Each Plan Administrator shall maintain records for all employees in its Plan, in connection with their participation in Policies issued, and shall be solely responsible for complying with any provision of the Employee Retirement Income Security Act (ERISA) as it may be amended from time to time which may apply to their participation in this Trust Agreement.
The application refers to the Summary of Benefits as showing what coverage has been elected. However, election of coverage appears to have been accomplished through selections made on a "Mini-Plan Screening Checklist." The checklist identified plaintiffs medical practice as a sole proprietorship and plaintiff as the "Plan Administrator." Out of three alternative forms of benefits — long-term disability, short-term disability, and life — long-term disability was selected. There is an indication next to the remaining two alternatives that they are not applicable. This checklist was not signed by plaintiff. The name of Jack Nelson appears on the document. Nelson was plaintiffs broker.

On April 26, 1994 defendant sent plaintiff, as plan administrator, certificates of coverage for himself and his employee, a summary of benefits, and a variety of forms for claims, new enrollments, etc. These materials were, in effect, the policy. Plaintiffs policy provided long-term disability benefits for plaintiff and all full-time employees who worked a minimum number of hours each week. According to the terms of this policy, defendant could terminate plaintiffs coverage if the number of employees insured was less than two. Plaintiff, although the employer, was counted as an employee of the sole proprietorship for this purpose. At the time plaintiff purchased the policy, he employed one full-time medical assistant. When this assistant left plaintiffs employ in 1999, plaintiff hired a different medical assistant and submitted information to defendant to reflect this change and thereby maintain coverage.

Plaintiff at all times paid the policy premiums for both himself and his employee.

Plaintiff has filed an affidavit stating:

. . . I did not assist in drafting the insurance policy. I did not play any role in placing the insurance policy. The insurance broker handled procurement of the policy, and, thereafter, I received premium bills, for which I personally paid all premiums. At no time have I ever received any compensation from First UNUM in connection with administration of the insurance policy.
Plaintiff also states in his affidavit that he was unaware of the existence of any trust and, prior to undertaking discovery for this lawsuit, had never been given the Trust Agreement.

On July 11, 2000 plaintiff underwent heart surgery. In November 2000, alleging that he was unable to perform his duties as an internist, plaintiff made a claim under the policy. Defendant denied plaintiff's claim. Defendant alleged that plaintiff returned to work as medical director of a nursing home after his surgery. Defendant calculated that plaintiff therefore did not suffer a loss of earnings of at least 20 per cent, which the policy required for partial disability benefits. Because plaintiff continued to work as a medical director at a nursing home, defendant determined plaintiff to be ineligible for total disability benefits. This denial of benefits was upheld following an administrative appeal.

Plaintiff filed suit in state court alleging common law breach of contract. Defendant removed, as indicated above, on the basis of ERISA.


With certain qualifications not relevant to the present case, Congress expressly provided for the complete preemption by ERISA of state laws "insofar as they may now or hereafter relate to any employee benefit plan" as defined by the statute. 29 U.S.C. § 1144 (a). Under ERISA's civil enforcement provision, a civil action may be brought by a participant or beneficiary of such a plan to recover benefits due under its terms. 29 U.S.C. § 1132 (a)(1)(B). Although federal law is to apply, Congress granted district courts and state courts concurrent jurisdiction to hear cases brought under that civil enforcement provision. 29 U.S.C. § 1132 (e)(1).

The relationship between federal preemption and the rules regarding removal of actions from state to federal courts is the subject of a surprising amount of complexity. But none of this requires discussion in the present case. Only two issues require decision here. The first is whether plaintiffs arrangement with defendant constituted an ERISA employee benefit plan. If so, plaintiffs purported state law claim is preempted by ERISA, and the action is removable, unless a U.S. Department of Labor "safe harbor" regulation exempts the action from preemption. See Searles v. First Fortis Life Ins. Co., 98 F. Supp.2d 456, 459 n. 30 (S.D.N.Y. May 24, 2000). The issue about a possible safe harbor is the second of the two issues to be dealt with.

Turning to the first of the above issues — whether there was an employee benefit plan — an employee benefit plan is defined to be either an employee welfare benefit plan, an employee pension benefit plan or a plan that is both a welfare and pension benefit plan. 29 U.S.C. § 1002 (3). In relevant part, an employee welfare benefit plan is defined at 29 U.S.C. § 1002 (1) to be:

any plan, fund, or program . . . established or maintained by an employer or by an employee organization, or by both, to the extent that such plan, fund, or program was established or is maintained for the purpose of providing for its participants or their beneficiaries, through the purchase of insurance or otherwise . . . benefits in the event of sickness, accident, disability, death or unemployment. . . .
The statute defines the term "participant" to mean "any employee or former employee of an employer . . . who is or may become eligible to receive a benefit of any type from an employee benefit plan which covers employees of such employer . . ." 29 U.S.C. § 1002 (7). It should be noted that even a plan with only one employee is sufficient to meet the requirements of ERISA. Wolyn v. Livingston, No. 93 Civ. 0618, 1995 WL 685971, at *5 (S.D.N.Y. Nov. 16, 1995). Once an ERISA plan is determined to have been established, the employer may also qualify to receive the benefits under the plan. 29 C.F.R. § 25 10.3-3(b) & (d)(1)(i).

In the present case there was a plan established through the purchase of insurance providing disability benefits. There was always one employee who qualified as a participant, as defined by the statute, and, as already stated, this was sufficient for the establishment of an ERISA employee benefit plan. The plan provided benefits in the event of disability. None of this is contested by plaintiff.

What is denied by plaintiff is that this was a plan "established or maintained by an employer." It is difficult to comprehend plaintiffs argument in view of the fact that he applied for this group insurance policy and paid all costs and premiums. The policy covered himself and his employee. When the first employee left his office, plaintiff made the necessary arrangements to substitute the new employee under the policy. Had plaintiff not done so, the policy could have been terminated by defendant.

Plaintiff states in an affidavit that he did not assist in drafting the policy. Plaintiff states that an insurance broker "handled procurement" and that plaintiff "did not play any role in placing the insurance policy." But the broker was plaintiff's agent. In any event, plaintiff accepted the policy on the terms that his broker had worked out.

Plaintiff cites three cases from the First, Sixth and Ninth Circuit Courts, respectively, for the proposition that his activities as an employer were too insubstantial to warrant a finding that he established or maintained a plan under ERISA. Johnson v. Watts Regulator Co., 63 F.3d 1129 (1st Cir. 1995); Thompson v. American Home Assurance Co., 95 F.3d 429 (6th Cir. 1996); Zavora v. Paul Revere Life Ins. Co., 145 F.3d 1118 (9th Cir. 1998). Plaintiff argues that, like the employers in these cases, he did nothing more than serve as a conduit to confer a benefit.

These cases are easily distinguished from the present lawsuit. In all three cases, the insurance program in question was voluntary for employees. Those employees who elected coverage paid all premiums themselves without any contribution from their employers. The involvement of the employers in these cases never rose above the ministerial: publicizing plans with insurer-provided brochures, deducting and remitting premiums from an employee's payroll, and distributing certificates of insurance to those employees who chose to participate. Johnson, 63 F.3d at 1131; Thompson, 95 F.3d at 431; Zavora, 145 F.3d at 1121.

That these cases are inapposite is further demonstrated by analysis of the Department of Labor "safe harbor" regulation, the final step in the court's analysis. The regulation excludes certain group insurance programs from the definition of an employee welfare benefit plan — and thus would exempt plaintiffs plan from ERISA coverage — if all four of the following conditions are met:

[T]he terms "employee welfare benefit plan" and "welfare plan" shall not include a group or group-type insurance program offered by an insurer to employees or members of an employee organization under which
(1) No contributions are made by an employer or employee organization;
(2) Participation in the program is completely voluntary for employees or members;
(3) The sole functions of the employer or employee organization with respect to the program are, without endorsing the program, to permit the insurer to publicize the program to employees or members, to collect premiums through payroll deductions or dues checkoffs and to remit them to the insurer; and
(4) The employer or employee organization receives no consideration in the form of cash or otherwise in connection with the program, other than reasonable compensation, excluding any profit, for administrative services actually rendered in connection with payroll deductions or dues checkoffs.
29 C.F.R. § 2510.3-1 (j).

As to the first item, plaintiff argues that because he paid all premiums beginning in 2000 with personal checks, and because his medical practice did not claim an income tax deduction for payment of disability insurance premiums, he therefore made no contributions as the employer. argument has no merit. Where, as here, a sole proprietorship with one employee has established an employee benefit plan that is otherwise clearly governed by ERISA, the court would draw too fine a distinction to make the question whether the employer made a contribution hang on the employer's choice of bank accounts or degree of tax planning. Such a holding would suggest that sole proprietors could easily circumvent the intention of Congress to regulate such plans under ERISA. The "safe harbor" regulation appears to permit a much narrower exception.

As to the second item, plaintiff argues that participation in the plan was completely voluntary. Plaintiff states that "defendant can point to no documentation which supports that each of Dr. DiMaria's employees be required to be insured under the insurance policy as a condition of employment" (emphasis in original). It is settled law that a formal written document is not required to prove the existence of an ERISA plan. Grimo v. Blue Cross/Blue Shield of Vermont, 34 F.3d 148, 151 (2d Cir. 1994). Regardless of documentation, plaintiff's practice over six years indicates that disability insurance was not an optional benefit for his employees. Were either of plaintiffs employees to have declined coverage, defendant could have terminated plaintiff's own disability insurance coverage. To the extent that plaintiff desired to continue his disability coverage, enrollment of his employee would not appear to have been voluntary.

Regarding the third item, for reasons already described, this was not the case where the employer simply allowed the insurance company to solicit employees and then collected money from them.

As to the fourth item, plaintiff claims to have received "no remuneration at all concerning the insurance policy." This appears to be true. But the fact that one out of the four safe harbor conditions is met does not take the plan out of ERISA.

Plaintiff's employee benefit plan was established and maintained by plaintiff as the employer. It is not exempted from ERISA by the Department of Labor "safe harbor" regulation.

Finally, plaintiff argues that the trust through which he purchased the policy, and not the policy itself, should be the focus of the court's ERISA analysis. According to plaintiff, the trust is not an employee welfare benefit plan as defined by the statute. But the trust was simply defendant's internal mechanism of dealing with the provision of benefits under its policies. Plaintiff made a "purchase of insurance," and under the statute this created an ERISA plan.


For the reasons discussed above, plaintiff's cause of action is under ERISA and removal to the federal court was proper. Plaintiff's motion to remand is denied, as is plaintiff's motion for costs.



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